Still Many Ways to Skin a Capital Cost

Harvard Business Review

The motivation behind it, as with many, many articles published over HBR's nearly 90-year history, was to take an effective practice developed in one corner of industry and spread it to managers everywhere. knew that firms were making heavy use of the capital asset pricing model (CAPM) to size up growth opportunities, but that the model was only as good as its inputs. Not at all, he said, because it's "no secret that applying the CAPM is as much an art as financial science."

DCF 12

Why Sit on All that Cash? Firms Uncertain on Cost of Capital

Harvard Business Review

Only 46 percent use the perpetuity growth model, while 27 percent develop an explicit cash flow forecast for the entire life of a project. Fully 72 percent develop multiple cash flow scenarios representing the expected outcome as well as best- and worst-case outcomes, which are then discounted. Budgeting Finance Strategic planning CAPMWith a record $2 trillion in cash and short-term liquid assets on hand, U.S. non-financial firms certainly seem poised to expand.

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What Private Equity Investors Think They Do for the Companies They Buy

Harvard Business Review

In operational engineering, PE firms develop industry and operating expertise that they bring to bear to add value to their portfolio companies. Furthermore, few PE investors explicitly use the capital asset price model (CAPM) to determine a cost of capital. Instead, PE investors typically target a 22% internal rate of return on their investments on average (with the vast majority of target rates of return between 20 and 25%), a return that appears to be above a CAPM-based rate.

Why Those Guys Won the Economics Nobels

Harvard Business Review

Campbell’s work has also made liberal use of the analytic tools developed by Hansen. Back in the ‘60s, people developed the capital asset pricing model [CAPM] as a way to do that. And the theory that was available then was CAPM. And in those early tests, it seemed like market prices mostly obeyed both CAPM and the efficient market hypothesis. Fama and Ken French said the rewards in the market don’t just come from beta as the CAPM would have it.

Stop Trying to Predict Which New Products Will Succeed

Harvard Business Review

How you answer this question may be the most important factor in how you design your product development process — and, ultimately, in whether your business succeeds or fails. We have a set of processes created for recognizing success in inherently unpredictable projects — lean product development, customer discovery, discovery-driven planning — yet we consistently fail to apply them. Product development When is it possible to predict a product’s success?